August 2022

Broadly speaking, accounting is the quantification and communication of both financial and non-financial information concerning economic organisations, such as corporations.

More specifically and in terms of business, accounting is primarily the process of tracking and recording finances in order to keep track of money coming in to, and going out of a company. This allows companies to gain a deeper insight and understanding into their spending, as well as where their money is going.

Accountants themselves are professionals who carry out all these procedures and are also responsible for other tasks such as ensuring that financial data is recorded correctly and generating reports to represent this data in a way that makes it clearer for businesses to understand and interpret.

What do accountants actually do?

Whether the business is big or small, the role accountants play within the business tends to be extremely significant and carries a lot of responsibility.

An accountant will typically work with individual clients or larger businesses and organisations and bear responsibility for a range of finance-related tasks, such as explaining invoices and accounting policies to the client (or various facets of the business), determining payroll requirements, analyzing revenue and expenditure trends, and ensuring that the books are balanced correctly.

Other duties might include preparing and reviewing budgets, monitoring spending so the client can avoid unnecessary expenses, and even business planning.

What role would an accountant play in my business?

In addition to all the typical responsibilities we just discussed, an accountant helps businesses with financial management by recording, tracking, and quantifying data, and using it to calculate how much money they make and spend each month. This includes recording transactions such as invoices, receipts, and payments. They also keep records of assets and liabilities and stay continuously aware of finances in order to ensure that a company has enough money to, for example, pay its bills

Why should I hire an accountant?

No matter the size of your business, hiring a qualified accountant or outsourcing to an accountancy firm is important in order to make sure you are able to stay on top of the company finances, and all other financial affairs. A qualified accountant will be able to help out with reviewing the financial aspects of a business plan, explaining legal business structures, and correctly preparing tax documents, which is likely to save you both money and time.

If you’re running a small business, accounting on your own can quickly become overwhelming, especially when you have other aspects of the business to keep an eye on. Hiring an accountant in this instance can help to almost immediately alleviate some of the pressure you might be feeling. They’ll also be able to assist in areas such as calculating business metrics, which will help you run your business as efficiently as possible.

Equally, you may feel a little bit hesitant to hand over any control of the business you’ve worked so hard on, even though it can be stressful at times. As your business grows, delegating at least some parts may become increasingly inevitable, if only to allow you some time to rest. Choosing to delegate financial affairs can be a good place to start – going with the right accountant will mean you’re able to feel confident that your company’s finances are being well looked after by someone more even experienced than you are and allow you to concentrate on other aspects of your business.

Another reason you might consider hiring an accountant is if you plan to start a new business, or further expand your current one. In fact, accountants can also assist in handling growth transitions, such as hiring employees or deciding to acquire more office space.

Whether you’re a huge corporation or a small startup, the range of services an accountant can offer, along with their high level of expertise and professionalism, means that many of the most critical company responsibilities will be taken care of, completely hassle-free.

Types of accountants

The two primary types of accountants are non-chartered accountants (NCAs) and chartered accountants (CAs). Non-chartered accountants are not required to take exams but do still undergo education and training. Chartered accountants are required to train for up to five years, study intensely and pass a rigorous set of examinations.

Whilst both are permitted to practice as accountants, the key difference between the two is that chartered accountants are typically more qualified and experienced, and may also be a member of a professional body, such as the Association of Chartered Certified Accountants (ACCA).

Beyond these two initial categories, there are many different possible accountancy specialties, such as public accountants, management accountants and government accountants.

How much does it cost to hire an accountant?

It is most common for accountants to charge a fixed fee, and costs really depend on the level of services required, as well as the area in which you need assistance. Just like we’ve outlined, there are different types of accounts, and different types of accountants, so it’s important you choose one you feel is right for you.

Whilst many businesses prefer to pay a monthly fee to their accountant, it is absolutely possible to pay by the hour, or for individual services. You can also mix and match if that suits you. This is another reason why considering which accountant is best for your business is really important.

An initial consultation may be a good place to start. These are usually free and will help to outline the areas that you may want an accountant for.

Looking for an accountant?

Shenward is an established and highly respected family-run chartered accountancy firm, dedicated to providing exceptional client service. We are always happy to help out with any personal or business inquires you may have. Please do get in touch at hello@shenward.com.

HMRC recently announced that to ensure all claims made on research and development (R&D) tax are legitimate, and to prevent abuse of R&D tax credit payments, it will be strengthening its extensive compliance checks.

In this article, we explore why.

Background

£7.4bn is the estimated total amount of R&D tax relief support claimed for the year ending March 2020, an increase of 19% from the previous year. This corresponds to £47.5bn of R&D expenditure, which is 15% higher than the previous year. These newly implemented checks will not only seek to scrutinize any and all claims, but also aid in a better understanding of the scale and nature of errors and fraud associated with these particular reliefs.

Despite allocation of extra resources, including the hiring of 100 supplementary compliance officers, these additional checks mean HMRC’s standard processing time will increase significantly. In lieu of this fact, HMRC has also noted that it is seeking to return to standard processing time as quickly as possible.

What is Research & Development Tax?

Research and Development reliefs are tax credit payments designed to encourage investment in innovation from UK companies. It can be claimed by a wide variety of different companies, regardless of size, who are working on innovative projects that seek to research or develop an advance in their field or resolve a particular uncertainty.

For the work to qualify, it is essential for it to be part of a specific project aiming to make advances in the spheres of science or technology. However, this only applies to the project itself, not to to the company as a whole. The tax credit allows a company’s R&D spend to be recovered, either as a reduction in Corporation Tax or a cash repayment. It is also possible to claim for projects that were ultimately unsuccessful.

What costs can I claim?

Starting from the date you began working on the project or resolving the uncertainty, you can claim a range of costs right up until you discover or develop an advance, or the project comes to an end.

Costs that qualify for R&D tax credits include:

Staff – employee costs including salaries, pension contributions and employer’s National Insurance contributions.
Subcontractor/freelancer costs (up to 65%).
Some types of software, including software license fees.
Payments to volunteers who took part in any clinical tests or trials.

You cannot claim for the costs of rent, capital expenditure, production and distribution of goods and services, or the cost of land, patents or trademarks.

How do I claim R&D Tax Relief?

You can make a claim for R&D tax credit payments up to two years after the end of the accounting period that it relates to.

Essentially, to claim the relief, you need to submit your enhanced expenditure into the full Company Tax Return form (CT600). Following this, you should use the online service to support your claim.

To calculate enhanced expenditure, start by working out costs directly attributed to research and development – remember to reduce any subcontractor or freelancer payments to 65% of the original cost. Add all costs together and multiply the result by 130% – this gives you the additional deduction to put into your tax calculations. Add this figure to the original R&D expenditure cost to get the figure for enhanced expenditure. This is what you must enter into your tax return.

Whilst there is no legal obligation to do so, it’s a good idea to produce an R&D technical report that not only justifies the advancements/uncertainties of the work, but also sets out the eligible expenditure being claimed on a project-by-project basis. The report should also include a short summary explaining the project, the start and end dates of the relevant accounting period, and your 10-digit company unique tax reference number. It may be helpful to speak to an R&D tax specialist when compiling any supporting documents to ensure they cover all necessary ground and to maximise your claim.

What does the ramp up in investigation mean for businesses?

The main consequence of the enhanced investigations is longer processing time for tax credit payments. Despite the standard processing time being 28 days, HMRC currently aims to pay the tax credit within 40 days. This means businesses should be prepared to wait significantly longer to either receive payment or be contacted regarding a claim.

The additional compliance officers working to implement these checks also means an increased level of scrutiny when inspecting R&D relief claims. However, this is unlikely to cause any problems, particularly if the claim has been checked by a qualified and experienced accountant or tax specialist, and all procedures outlined below have been properly considered.

What procedures to follow

It’s important to follow correct procedures when submitting a claim for R&D tax relief to ensure your application goes as smoothly as possible, particularly given the added level of scrupulousness that HMRC is currently fostering.

When putting together your claim, there are several points to consider in order to ensure it will meet the required standard. Make sure all entries are completed on the R&D section of the corporation tax return (CT600 form) and stay up to date with the latest guidance on completing the CT600 form on gov.uk.

Submitting any and all additional information to support the claim, including the R&D report, will help HMRC process the claim quicker, reducing any potential additional processing time. And finally, be aware that if a claim is submitted that is incorrect, inflated, or fraudulent then you may be liable to a penalty.

Get in touch

Compiling tax relief claims can be overwhelming. If you need to discuss any aspect of the claims process for R&D tax relief, or anything specifically regarding your claim, please do not hesitate to reach out to us at hello@shenward.com.

Month: August 2022